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Ubiquiti Networks Delivers an Impressive Holiday Quarter

Steve Symington, The Motley Fool

Ubiquiti Networks (NASDAQ: UBNT) announced fiscal second-quarter 2019 results early Friday, exceeding expectations for the fourth time in as many reports thanks again to its fast-growing enterprise technology segment.

With shares up more than 16% today as of this writing and 85% over the past year, let's take a closer look at how the networking hardware company capped its first half, as well as what investors should be watching in the coming quarters.

White Ubiquiti Networks wireless router on a bookshelf.

IMAGE SOURCE: UBIQUITI NETWORKS.

Ubiquiti Networks results: The raw numbers

Metric

Fiscal Q1 2019*

Fiscal Q1 2018

Year-Over-Year Growth

Revenue

$307.3 million

$250.8 million

22.5%

GAAP net income (loss)

$77.8 million

($51.5 million)

N/A

GAAP earnings (loss) per share

$1.09

($0.66)

N/A

DATA SOURCE: UBIQUITI NETWORKS. *For the quarter ended Dec. 31, 2018. GAAP = generally accepted accounting principles.

What happened with Ubiquiti Networks this quarter?

  • Adjusted for items like stock-based compensation, Ubiquiti Networks' (non-GAAP) net income climbed to $95.1 million, or $1.33 per share, up 75% from $0.76 per share in the same year-ago period. 
  • Ubiquiti Networks does not provide quarterly guidance. So for perspective, most analysts were modeling lower adjusted earnings of $1.08 per share on revenue of $276.4 million.
  • Despite the impact of tariffs on certain products imported to the U.S. from China, gross margin expanded 7 percentage points year over year to 45.6%. This was well above management's near-term outlook provided in November for between 42% and 45%.
  • Service provider technology segment sales (including the airMAX airFiber, EdgeMAX, and uFiber product lines) declined 5.6% year over year to $113.2 million.
  • Enterprise technology segment revenue (including the UniFi, mFi, AmpliFi, and FrontRow products) climbed 48.2% to $194.1 million.
  • By geography, North American revenue climbed 27.7% to $121.2 million, South American sales increased 0.8% to $20.9 million, EMEA region revenue grew 31.7% to $134.4 million, and Asia-Pacific revenue fell 7% to $30.7 million.
  • The company repurchased 356,576 shares for $34.7 million between Nov. 8, 2018, and Feb. 7, 2019, good for an average price of $97.31 per share.

Looking forward

Ubiquiti Networks once again declined to hold a subsequent conference call with analysts. But, similar to its past two quarterly reports, the company reiterated its target for gross margin to decline to between 42% and 45% in the near term given the cost of tariffs. Ubiquiti also reaffirmed its longer-term target for gross margin to remain between 45% to 50% as it works to mitigate the impact of tariffs.

Finally, the company reiterated its previous full fiscal-year 2019 outlook, which calls for revenue of $1.1 billion to $1.2 billion, and earnings per share of $4.00 to $4.80 -- with the caveat that the bottom line could decline to "$3.65 [per share] or lower" if tariffs are increased.

In the end, this holiday-quarter performance was as good as any Ubiquiti shareholder could have hoped. And the stock is continuing to respond in kind.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ubiquiti Networks. The Motley Fool has a disclosure policy.